Leading Voices

This is Leading Voices, a Wells Fargo podcast. Our clients think big, and so do we.  In our Leading Voices series, our leaders will share deep expertise across corporate banking, investment banking, fixed income, equities, and commercial real estate, while exploring the timely trends, actionable insights, and strategic opportunities to help power your business into a better, more inspired, and equitable future. With a focus on highlighting innovative ways industry leaders and visionary clients are embracing new sustainable strategies and solutions to navigate change, elevate their business growth, and deliver on long-term outcomes.

>> Geneviève Piché:

A few years ago, all we were talking about were green bonds. And that’s all there was. And now we are really elevating the dialog. 

>> Piché:
Welcome to Wells Fargo's Corporate and Investment Banking's Leading Voices podcast. This is our very first podcast, and I am super excited to be here with you. My name is Geneviève Piché. I lead the Sustainable Finance and Advisory Group. And I am joined here by David Szmigielski on our team. Hi, David. 

>> David Szmigielski:
Hi, Geneviève, glad to be here in Charlotte with you. It's such a sunny day. It’s beautiful out. 

>> Piché:
Thank you so much for coming from New York this morning. New Jersey, actually your home state. There is something really quirky that we were just talking about before we started, which is that you really love swamps. 

>> Szmigielski:
I really am a wetlands super fan, and I try to do my part in restoring our local ecosystems. As you pointed out, I live in New Jersey and work in New York. There's quite a bit of tidal and estuary ecosystems out there. And when I'm not kind of poking around in the muck, I'm just spending time there with my family and Geneviève, I know you're a huge fan of the national parks, so that's pretty similar. 

>> Piché:
It is, yes. Huge fan of the national parks and it's something that we've been doing for a long time. And now we have an eight-year-old son and do the junior Ranger programs and have a great time. So I think it makes us very well-suited to the work that we, do, aside from the fact that we're also bankers. So as we prepared for this podcast it really made me think of a quote from Coca-Cola's CEO, James Quincey, and he said this at a dinner of fellow CEOs earlier this year. And he said, It seems like ESG has become a toxic topic, a toxic acronym. And he said that may very well be and I will stop using it. And I'm paraphrasing, by the way, but he also said the idea that I want to be water positive, that I want to have a circular economy on my packaging, that I want to grow our business with less sugar are all things that are good for business. Call it what you want, but they are value creating and I think that is such an important topic, which is what we want to talk about here today, which is sustainability strategies are value creating. In your client engagement, David, do you see this topic coming up? 

>> Szmigielski:
Absolutely Geneviève. This is a huge keystone point in all of our engagements with our client base. A great opportunity or example of this is all of the waste heat out there in industrial processes. This is a by-product and it is an opportunity to capture that heat to generate additional electricity or additional power or additional production. And it's one that is untapped largely. And here is a great example of achieving gains not only in energy efficiency, operational efficiency, financial savings, saving on your electricity bill ultimately, but also satisfying environmental gains, reduction of emissions and the like as well. 

>> Piché:
Right. And a lot of these initiatives that you've just mentioned are reducing cost for companies. They are creating margin expansion. They are attracting new customers. They are driving valuation, and all of these things are better understood now than they ever were before. Five years ago, we were not having these conversations and as a result, we as a bank are having to up-tier and improve the type of engagement that we have because our clients are more sophisticated. And I want to ask you a little bit about some of the analytical work that we're doing to support our clients. 

>> Szmigielski:
Yeah. So, you know, a really great example of this type of analytical work that tries to demonstrate the value not only on the financial side, but also what are those additionalities from an environmental and social perspective is work that we're doing with our client base around their fleet electrification. So some of our clients have large corporate fleets. They might be simple vehicles that just get employees from site A to site B. To make client calls to visit other offices. Also more heavy duty infrastructure, bucket trucks and trailers and tractors and the like. How do you actually address that entire fleet as that fleet ages as that fleet needs to be replaced? And how do you do it in a way that satisfies multiple aims, not only those that are related to the energy efficiency and the fuel economy of those underlying vehicles, but also satisfying social and environmental gains all in one discussion. And so what we've developed is a tool to engage clients around the operational savings, the CapEx associated with replacement of the fleet, the life expectancy of the underlying vehicles, etc.. But also what are the emission savings associated with electrifying a fleet and how do those tie to our clients emissions and sustainability metrics? And what does this mean for our clients employee base for example, what are some of the unquantifiable but very tangible benefits to employee health and safety, as well as employee engagement at the worksite and how does this impact communities? We have really tangible examples of utility clients, for example, being able to operate longer in the communities that they serve because the vehicles are quieter. 

>> Piché:
It's so interesting what you're describing because I think when we had undertaken our very first work in sustainability, we formed this group three years ago, we were looking at value creation from an equity valuation standpoint. And we found it very hard to find, and that's because equity values incorporate so many different facets that are difficult to isolate to a specific sustainability initiative. But what we have found and this what you’re describing here is that it has very tangible benefits for cash flow. And when you describe the model that you're talking about here, the methodology, you’re really talking about a CapEx spend that results in OpEx reductions in time. So we can actually start to identify a return on investment, which I think is really the way to be thinking about this going forward. And we can talk about electrification of fleets, which won a selection by the White House. So congratulations to you, David, for their EV acceleration challenge. So we're super proud of that. But that's just one form of green expenditures and CapEx. There are so many more. In the real estate space, upgrades of appliances or the installation of solar panels. And when you combine that sort of analysis, you can really start to quantify how these initiatives benefit your company. And I think what's really exciting is many companies have many sustainability initiatives and if you do have a goal in the end of reducing greenhouse gas emissions at your company, there are multiple things that you can do. And by doing this sort of green CapEx analysis, you can actually determine whether or not you know, maybe two out of the three that you wanted to do are profitable and one doesn't quite break even. Maybe it's still justification to do all three because collectively they make economic sense. So I think that's really amazing because it's a good way to drive economic value creation. But you're also amplifying the impact of your work. You know, the other part of the puzzle that you did not allude to at the end of all of that analysis, we have the capital to bring to the table, and we've innovated. You want to talk a little bit about, yeah entirely, what we have available to be able to finance fleet electrification or whatever else? 

>> Szmigielski:
Yeah, we've innovated an entire toolkit of products that help serve customers where they are at in their sustainability journey, the types of investments that are right for them at that juncture, as well as the type of tenor and instrumentation that is required for each individual instrument. So in the case of fleet electrification, we have green syndicated and bilateral lease and loan solutions through Wells Fargo equipment finance, which is a really exciting opportunity for our clients not only to address their fleet electrification, but also communicate to their lenders and investors the positive work they're doing from a financial and economic perspective, from a social perspective, and certainly from an environmental perspective. And I think sustainability ultimately as it relates to integration into the financial markets, really operates quite a bit like a nutrition facts label. 

>> Piché:
Right? 

>> Szmigielski:
So it's a little bit like, you know, what are those economic or financial gains, maybe the calories, but also for certain stakeholders or certain consumers. If you look at a nutrition facts label, there are other things that are important than just the calories. And what we're trying to achieve is a multilayer of materiality or benefit that satisfies not only those seeking a financial or calorie return, but also the supplements and the vitamins as they require them. 

>> Piché:
Yeah, that's a really good analogy because the other thing that we are seeing is that sustainability is not a one size fits all. Not every company will be adopting the exact same approaches. And so when you create these multifaceted views on sustainability strategies for companies, those companies and their stakeholders can decide whether they want to prioritize water over GHG emissions much like a consumer might prioritize you know, iron over calcium. It's, you know everybody is going to be a little bit different. So I think it's really great. And it, it really has led to innovation, which you've just talked about. We have a slew of new financing solutions that never existed before. We have new abilities to advise our clients as they look at strategic opportunities. And all of it is about value creation now. Maybe the final concept that we could bring up is that of double materiality. It’s something we hear a lot about. Double materiality can have several meanings to different stakeholders as you know. Can you give me your take, David, on what double materiality means, or the double bottom line, not in the specific context of financial and risk disclosure, which has very unique considerations, but in the broader context of what it means to companies’ business strategies and the real economy. 

>> Szmigielski:
Double materiality ultimately comes down to an idea that the most successful sustainability strategies, those that have both financial economic benefits as well as environmental and social benefits that are quantifiable, and those are the ones that resonate the most with stakeholders certainly, and have the greatest impact in both of those regards. You can see this most manifest in the real estate space, of course, which is that the most energy efficient buildings or buildings with upgrades and retrofits into their performance, immediately materialize in financial savings and gains reduction of power, electricity bill, etc., but also benefits to those that occupy those buildings and certainly also the emissions reductions associated with those investments. And so we are seeing clients double down on double materiality and bring very innovative concepts to market that grow with them. We have a structure for clients called Sustainability Investment Linked Loan or Hybrid Supplement, as we call it, that essentially allow our clients to utilize the facility as they make these investment decisions over time rather than pre-planning what that aggregate investment is at time of close, allowing them to drawdown and repay a drawdown and repay. And I know that's one that you're excited about. And many of the innovations in this space maybe welcome some of your input around that as well. 

>> Piché:
Yeah. And I think what you're describing is the sophistication of this work as it develops. A few years ago, all we were talking about were green bonds and that's all here was. And now we are really elevating the dialog into these really substantive strategic topics. And I think that this is where the direction of travel is going. We have to be doubling down on double materiality. As you just said, and. I think our work will follow that. I think our clients are going to be doing the same. I'm really excited about how sustainability has become value creating in the last few years, and I'm really excited about Wells Fargo's role in supporting our clients as they go down some of their own strategic journeys around sustainability. I really look forward to coming back in the future and telling you more about how the space is developing and how Wells Fargo is supporting clients. It's great to be here with you, David, and thank you for joining us. 

>> Szmigielski:
Always a pleasure, Genevieve. Thanks for having me. 

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